With a 13% Yield but an Uncertain Interest Rate Environment, Is AGNC Stock a Buy?
The interest rate environment has suddenly changed for the mortgage REIT.
Overview
With a yield of over 13%, AGNC Investment (NASDAQ: AGNC) is a stock that frequently pops up on dividend investors' radars. For those unfamiliar with AGNC, it is a mortgage real estate investment trust (mREIT) that owns a portfolio of agency mortgage-backed securities (MBS). Since these bonds are backed by government agencies, they carry essentially no default risk. However, the value of MBS can be greatly affected by movements in mortgage spreads and interest rates, and with the Fed now considering an interest rate hike rather than a cut, the environment has suddenly changed for AGNC.
Image source: The Motley Fool.
While AGNC noted the sudden shift in rate expectations with a new Fed chief, it believes the supply of new mortgages will be materially lower this year, while demand for MBS should remain high. As such, it thinks spreads can remain within 120 to 160 basis points of Treasuries and perhaps even tighten. Lower spread volatility is generally good for AGNC and can allow it to invest with more leverage.
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Originally published at www.fool.com.